{
  "title": "To Tackle Housing Affordability in Canada, Build More Houses",
  "publication": "IMF Blog, October 2, 2019",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2019/10/02/blog-to-tackle-housing-affordability-in-canada-build-more-houses",
  "canonical": "https://www.imf.org/en/blogs/articles/2019/10/02/blog-to-tackle-housing-affordability-in-canada-build-more-houses",
  "overlayPath": "/en/blogs/articles/2019/10/02/blog-to-tackle-housing-affordability-in-canada-build-more-houses/index.md",
  "summary": "Authors: Michal Andrle, Cheng Hoon Lim, Troy Matheson",
  "sections": [
    {
      "heading": "Overview and context",
      "content": "- Authors: Michal Andrle, Cheng Hoon Lim, Troy Matheson\n- Date: October 2, 2019\n- Theme: Canada faces housing affordability challenges in major cities (examples cited: Vancouver and Toronto), contributing to record-high levels of household debt as buyers borrow as much as they can to obtain housing."
    },
    {
      "heading": "Short-term policy responses and their effects",
      "content": "- Policymakers often adopt politically palatable short-term fixes, including:\n  - Relaxing prudential regulations to enable households to borrow more (higher loan-to-income and loan-to-value ratios).\n  - Increasing or introducing tax-deductibility of mortgage interest-rate costs.\n  - Subsidizing home purchases directly.\n- Key finding:\n  - Policies that increase households’ capacity to borrow may unintentionally raise house prices because housing supply is fixed in the short term. Increased borrowing capacity → increased demand → higher house prices → reduced affordability and higher household debt.\n- Empirical comparison:\n  - The authors compared house price dynamics in eleven Canadian Census Metropolitan Areas with households’ ability to borrow (the “attainable” house price)."
    },
    {
      "heading": "Role of interest rates and borrowing capacity",
      "content": "- Definition used:\n  - “Attainable” house price is determined using the maximum mortgage loan a household can attain from a bank given its down payment and desired level of debt service.\n- Findings:\n  - Median house prices in most Canadian cities have tended to increase in line with households’ borrowing capacity; sometimes prices have exceeded borrowing capacity.\n  - Homebuyers have been able to borrow more over time due to rising incomes and a significant decline of mortgage interest rates over the past two decades.\n  - In Toronto and Vancouver, house prices have increased much more than implied by attainable prices, resulting in over-valuation for an extended period.\n  - The trend has contributed to a rise in the size of down payments as a share of income and a push towards higher loan-to-value ratios.\n- Outlook:\n  - With mortgage rates not in decline and incomes growing slowly, borrowing capacity will be constrained, which will weigh on housing demand and bring about a decline in house prices that will improve affordability.\n  - Risk: the decline in house prices could be a sharp and disruptive price drop."
    },
    {
      "heading": "Supply-side strategy (policy recommendations)",
      "content": "- Recommendation: regional and federal authorities should collaborate on a comprehensive housing supply strategy.\n- Suggested elements of the strategy:\n  - Accelerating the delivery of land ready for development;\n  - Shortening the approval process for building permits and re-zoning;\n  - Improving the transparency and certainty about the steps involved in the approval process;\n  - Ensuring development plans are time-limited to avoid construction delays;\n  - Re-evaluating rent control policies to improve the supply of rental properties and give households more dwelling choices;\n  - Assessing incentives for developers to build more purpose-built rentals with a view to encourage a more balanced mix of rental supply.\n- Recent initiatives noted as constructive steps:\n  - Establishment of the Expert Panel on the Future of Housing Supply and Affordability;\n  - Expanded Rental Construction Financing Initiative to increase the supply of rental units for middle income households.\n\nIMF blog post: To Tackle Housing Affordability in Canada, Build More Houses — Michal Andrle, Cheng Hoon Lim, Troy Matheson, October 2, 2019.\n\n---\n\n\n References\n\n- staff report\n- https://www.imf.org/wp-content/uploads/2019/10/eng-september-18-canada-housing.png\n- Chart of the Week: Canada’s Housing Market Slowdown\n\nSource: https://www.imf.org/en/blogs/articles/2019/10/02/blog-to-tackle-housing-affordability-in-canada-build-more-houses"
    }
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    "Authors: Michal Andrle, Cheng Hoon Lim, Troy Matheson",
    "Published: October 2, 2019",
    "Authors: Michal Andrle, Cheng Hoon Lim, Troy Matheson",
    "Date: October 2, 2019",
    "Theme: Canada faces housing affordability challenges in major cities (examples cited: Vancouver and Toronto), contributing to record-high levels of household debt as buyers borrow as much as they can to obtain housing.",
    "Policymakers often adopt politically palatable short-term fixes, including:",
    "Key finding:",
    "Empirical comparison:",
    "Definition used:",
    "Findings:",
    "Outlook:",
    "Recommendation: regional and federal authorities should collaborate on a comprehensive housing supply strategy.",
    "Suggested elements of the strategy:",
    "Recent initiatives noted as constructive steps:",
    "[staff report](https://www.imf.org/en/Publications/CR/Issues/2019/06/24/Canada-2019-Article-IV-Consultation-Press-Release-and-Staff-Report-47021)",
    "[https://www.imf.org/wp-content/uploads/2019/10/eng-september-18-canada-housing.png](https://www.imf.org/wp-content/uploads/2019/10/eng-september-18-canada-housing.png)",
    "[Chart of the Week: Canada’s Housing Market Slowdown](https://blogs.imf.org/2019/08/07/canadas-housing-market-slowdown/)"
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